Regulatory Compliance: A Nonprofit Organization’s First Line of Defense

Senate Judiciary Committee Chairman Senator Chuck Grassley’s recent announcement of renewed scrutiny into major foundations is a flashing red signal for all 501(c)(3) nonprofit organizations.

The Senate Judiciary Committee’s formal questions submitted to the Gates Foundation, Rockefeller Brothers Fund, and Ford Foundation over their international funding activities demonstrate that even the most established nonprofits are not immune from regulatory scrutiny. While these cases involve complex international compliance issues, they underscore a basic truth: regulatory compliance is your organization’s first line of defense against challenges to your tax-exempt status and public trust.

Put another way: It’s far easier to challenge your tax-exempt status or malign your public image for failure to maintain basic good governance standards than on the grounds of your mission-focused activities.

The nonprofit sector’s strength lies not only in our mission-driven work but also in our commitment to transparency, accountability, and regulatory compliance.

In today’s environment, every nonprofit, regardless of size or scope, should prioritize these essential compliance areas and, where applicable, commit additional financial and staffing resources for the following:

Governance and Authorization Controls

●Ensure proper authorizations and controls (e.g., check-signing permissions) are documented and followed
●Verify that speakers and representatives are properly authorized
●Maintain clear delegation of authority for all organizational commitments

Tax and Filing Obligations

●Meet all IRS filing deadlines
●Ensure accurate and timely payroll tax payments
●Stay current on all applicable federal, state, and local tax requirements

Registration and Reporting

●File charitable fundraising registrations in all required jurisdictions
●Maintain current corporate registrations in all states where you operate
●Submit required annual reports and renewals on schedule

Financial Oversight

●Implement robust financial controls and oversight procedures
●Ensure proper documentation for all expenditures and activities
●Maintain clear records that demonstrate charitable purpose

Board Compliance

●Ensure board members understand their fiduciary duties and legal obligations under 501(c)(3) requirements
●Maintain proper board meeting frequency and documentation, including minutes that reflect compliance discussions and decisions
●Implement conflict of interest policies and annual disclosure processes for all board members and key staff

Nonprofit activities face increased scrutiny from multiple angles in the current political climate. Organizations maintaining exemplary compliance records are better positioned to respond confidently to regulatory inquiries, maintain donor confidence, and focus resources on mission rather than crisis management.

Heightened scrutiny presents an opportunity to demonstrate our sector’s commitment to accountability and transparency. Organizations that lean into this moment and elevate their compliance practices will be the leaders in rebuilding and maintaining public trust.

Immediate Action Steps:

1.) Conduct a compliance audit of your organization’s current practices
2.) Review and update all governance policies and procedures
3.) Verify that all registrations and filings are current
4.) Document your compliance processes for future reference
5.) Train staff on proper authorization and approval procedures, including response to external inquiries